Discussion document issued 30 November 2010

Consultation response issued March 2011

Legislative changes are included in the Finance Bill 2011, issued on 31 March 2011

Draft regulations issued 20 May 2011. Consultation ended 17 June 2011

The draft Occupational Pension Schemes (Assignment, Forfeiture, Bankruptcy etc.) (Amendment) Regulations 2011

HMRC has issued a response following consultation on proposals to allow members subject to an annual allowance charge to pay the charge direct from their pension benefits. Points to note include:

  • Any tax due should be paid at the point the charge arises: the proposal to allow deferment of payment will not be taken forward.
  • Schemes (whether DB or DC) will be required to offer a "scheme pays" facility where a member's savings in the scheme exceeds the annual allowance and the amount of the member's annual allowance charge (across all schemes) is at least £2,000.
  • A member with an annual allowance charge of over £2,000 but who does not exceed the annual allowance in any one scheme may ask a scheme to provide a scheme pays facility but the scheme will not be required to do so.
  • Schemes operating a scheme pays facility may pay the whole of a member's liability to the annual allowance charge if they wish but need not pay more that the proportion of the charge arising in the scheme.
  • Schemes may not charge for operating a scheme pays facility.
  • There will be an exemption from the requirement to offer a scheme pays facility for:
    • schemes in a PPF assessment period;
    • schemes which enter a PPF assessment period before a member's request for direct payment has been processed;
    • in exceptional circumstances, schemes for which it can be demonstrated to HMRC that paying the annual allowance charge would detrimentally affect the overall health of the scheme to a substantial extent.
  • The Government will not prescribe how schemes are to adjust members' benefits following payment of the annual allowance charge, although the outcome must be "just and reasonable".
  • Individuals will have to make an irrevocable election for the scheme to pay the annual allowance charge by 31 July following the relevant selfassessment filing deadline (extended to 31 December 2013 for the first year of operation).
  • An election for the scheme to pay the annual allowance charge, and the corresponding adjustment to benefits must be made before the pension comes into payment. The maximum tax free lump sum should be determined after the annual allowance charges have been met.
  • If necessary, overriding legislation may be brought in to allow a scheme pays facility to operate where, for example, the scheme is in winding up.
  • Transferring members may elect for the receiving scheme to pay the annual allowance charge following a scheme merger.
  • The DWP has issued a consultation on draft legislation amending the current prohibition on forfeiture to allow the introduction of "scheme pays" facilities. The "scheme pays" facility will allow members whose annual allowance charge is a minimum £2,000 to request that their scheme meets the charge with a corresponding reduction in benefits, rather than the individual paying for it through their self-assessment tax return.